Leo Burnett Amps up Arc, Expanding Global Footprint

Publicis Groupe Shop Puts Focus on Shopper Marketing As Client Demand Increases

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It's the agency that's known for Tony the Tiger, Toucan Sam and Mayhem -- one that's long been known as the mascot shop, one that crafted massive traditional creative campaigns for companies like Kellogg's and McDonald's.

Leo Burnett Chairman-CEO Tom Bernardin
Leo Burnett Chairman-CEO Tom Bernardin

And while Leo Burnett continues to have much of its revenue from big, traditional ad campaigns, it's seeing serious growth potential in its Arc brand as the industry continues to see an uptick in client demand for new and innovative shopper and retail executions, along with mobile and data.

The Publicis Groupe network is responding by expanding Arc's footprint in all major markets, especially overseas, starting with the opening of four additional offices in India, Brazil, Mexico and Colombia by the end of the year -- making a total of 29 of Leo Burnett's 85 offices stocked with Arc talent and capabilities. The agency is also expanding its e-commerce footprint and expertise, forging a new relationship with Amazon.com to improve its clients' marketing efforts within the Amazon platform.

That such disciplines are considered sexy now is signals just how far they've come. The work of marketing-services agency brands like Arc was for years seen as representing all that's boring and uncreative in the ad world: the below-the-line shopper marketing, promotions and retail marketing that were once summed up with an end cap promoting shampoo in the grocery aisle.

But things are changing as those disciplines get more creative, innovative and sophisticated, thanks in part to the rise of mobile and e-commerce.

Steady growth
According to Publicis Groupe's ZenithOptimedia ad expenditure forecasts, shopper promotions is estimated to grow 3% from 2014 to 2015. It's not explosive growth, but it's a steady growth, particularly after a severe slowdown during -- and even in the couple years after -- the recession. Annual shopper-marketing spending will grow somewhere in the 10% to 15% range over the next few years, said Peter Cloutier, the CMO at shopper agency Catapult. And, he added, "these increases are generally being allocated from above-the-line budgets with an intent to drive shopper behaviors versus traditional mass awareness drivers."

Globally, Leo Burnett has 9,000 employees, and currently more than 1,000 employees work exclusively on Arc. Arc's business accounts for an estimated 20% of Burnett's revenue worldwide. In the U.S., 25% of revenue is from Arc. Leo Burnett worldwide Chairman-CEO Tom Bernardin said that in the last three years, Arc's revenue has nearly doubled. The overseas investment in Arc "is because of the growth we've seen in the U.S. and the U.K., we and want to create the same kind of growth trajectory in our revenue [globally]."

Arc's biggest clients include Procter & Gamble, for which it handles traditional shopper marketing and e-commerce globally; McDonald's, for which it handles in-store retail and mobile; Intel, which it won in 2013; Sprint; and MillerCoors. This year alone, according to executives familiar with the business, Arc added several P&G brands to its already hefty account.

Genesis of Arc
Arc's beginnings started in 2003 when Publicis Groupe rebranded more than 30 marketing-services offices in 19 countries as Arc. In 2004 Publicis Groupe tacked a few more acquisitions together, including Frankel, Leo Burnett's interactive shop iLeo, Semaphore Partners and Arc to form Arc North America. Leo Burnett gained control through the acquisition of D'Arcy Marketing Services.

Leo Burnett North American President Rich Stoddart
Leo Burnett North American President Rich Stoddart

But much of Arc's integration into Leo Burnett was a difficult transition. Current and former employees talked of power struggles regarding which side of the business had more authority over shared accounts, and which disciplines, such as digital, fell under which brand.

Arc executives said that Leo Burnett executives didn't respect Arc's capability, treating it as an uncreative afterthought or a mere add-on. "Leo Burnett people felt like they could control everything," said one former Arc executive. "Part of the perception was that Burnett was above the line, and therefore more important. ... And if one client that used both Arc and Burnett was getting bigger on the Arc side, there was discomfort when things were not labeled Burnett. ... Suddenly they'd start managing it more hands-on with Burnett people."

Burnett's North American President Rich Stoddart, who oversees both Arc and Leo Burnett in North America, said that time years ago was difficult for everyone, given different management teams for Arc and Burnett, along with different budgets, human resources teams and benefits packages, not to mention offices in different buildings.

But five years ago, Leo Burnett jettisoned separate P&Ls, human resources departments and other administrative support that created walls between Leo Burnett and Arc. Former Arc President and Chief Creative Officer Bill Rosen left in late 2011 to lead consumer marketing at VSA Partners, and his role was never filled. Senior Arc executives now work directly with Mr. Stoddart and Mr. Bernardin.

Key North American execuctives at Arc are Jim Carlton, managing creative director; Jenny Cacioppo, exec VP and account director on McDonald's; Nick Jones, exec VP and retail practice lead; and Karuna Rawal, exec VP and business lead on P&G North America.

Before migrating to a single P&L, Mr. Stoddart said, Leo Burnett execs would have to call up an Arc exec if a client wanted a piece of shopper-marketing work. The problem there, he noted, was that the Arc exec would then need revenue to create the work, which ultimately made the cost pressures to create multi-disciplined work very difficult to overcome on two separate budgets.

Of the difficulties between Arc and Leo Burnett, Mr. Bernardin said, "We still fight some of those battles today. But it's different now because people in general are understanding the key to the future is collaboration."

Many pitches Burnett approaches these days include creative ideas from both Arc and Burnett, even if the brief doesn't call for it. "It doesn't matter whether the phone rang for Arc or Leo Burnett. I'm going to a creative review with Arc and Leo in it. We believe in fueling that as a strategy going forward," said Mr. Stoddart.

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